Verizon struggles to compete with more video

Verizon is trying to diversify its business beyond wireless and Internet services, but breaking into video — a chief goal of the company — is not easy.

Verizon is trying to diversify its business beyond wireless and...

When Verizon created a video app in 2015 that would stream original shows, the carrier hoped to compete with heavyweights like YouTube and Netflix. But analysts say the New York company’s video aspirations have fallen short.

Video, with its rich digital advertising opportunities, has long been a goal for the wireless carrier. It’s a big reason that Verizon bought AOL in 2015 and it is part of why it has pursued Yahoo, another aging tech giant with a hefty user base (though that acquisition is uncertain following recently disclosed massive data breaches at Yahoo). Verizon’s latest target is reportedly the nation’s second-largest cable operator, Charter Communications. Verizon and Charter declined to comment to The Chronicle on a potential deal.

Analysts say the company is eager to diversify its business beyond wireless and Internet services and delve deeper into the video market, because more people watch videos on smartphones. A Charter acquisition would help Verizon gain customers and give it a foothold in cable television, a new frontier for the company, said analyst Jeff Kagan.

“If Verizon does not take this kind of direction, they are not going to grow,” Kagan said.

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In three consecutive quarters, Verizon has seen its revenue fall from a year earlier, because customers are shifting away from subsidized phone plans. The company’s fourth-quarter sales fell to $32.3 billion, about a 6 percent drop compared to the prior year.

Verizon offers video through its paid Internet television service, Fios, and its free, ad-supported Go90, released in 2015. Verizon invested substantially in Go90, which has offices in New York, Los Angeles and San Francisco, and paid advances to video creators for producing exclusive content. (Videos on Go90 cover topics from sports to entrepreneurship to cooking.) But two years after its release, Go90 — named for how people turn phones 90 degrees to view horizontal videos — has fallen short, analysts say. The company laid off 155 employees last week in its San Jose, Los Angeles and New York offices.

“While Go90 is a great place to distribute content to, where are the eyeballs?” said Eugene Lee, CEO of ChannelMeter, which helps companies manage people who create videos, including those who offer their fare on Go90.

Verizon declined to provide data on how large Go90’s audience is, but said it is growing and that on average, Go90 users spend 30 minutes each day on the service. When Verizon customers watch videos on the Go90 app, it doesn’t count against their data plans. But there are signs that the video division needs work.

Despite Verizon’s efforts, its name isn’t recognizable as a video service among many people 15 to 29 years old, according to marketing firm Ogilvy & Mather. Millennials are an important group because they could become future customers.

“People had very little opinion” of Go90, said Mark Himmelsbach, president of content and social at Ogilvy of the survey results. Those that were familiar with the app used their own or their parents’ Verizon subscription to access the sports content, Himmelsbach said. The response rate was so low that Ogilvy dropped Go90 from its surveys at the end of last year.

“We haven’t seen that Go90 is on advertisers’ radar as of yet,” Himmelsbach said.

Some say Go90’s audience should be much bigger than it is, given Verizon’s investment in the content of its video service, some of it provided by big media firms like Disney, NFL Network and Vice. Users can access Go90 on its website and app, as well as on AOL, and there is also select video-casting to Apple TV and Chromecast. The Convergence Research Group, a consulting firm, estimates that Go90 had an audience of 2 million last year — smaller than what one would expect, considering that Verizon has more than 114 million wireless subscribers and watching videos on Go90 does not eat into their data plans.

The Go90 app ranked 20th in Apple’s App Store in the iPhone entertainment category in the U.S. on Tuesday, according to analytics firm App Annie. Netflix placed first, followed by Hulu and Amazon Prime Video. In the Google Play Store, Go90 ranked 30th in the entertainment category, App Annie said.

Verizon says Go90 is part of its strategy to diversify revenue sources and gain market share in digital advertising as it competes against the likes of Google and Facebook. Verizon purchased AOL for $4.4 billion in 2015, and Go90 content is appearing on AOL properties. In 2016, Verizon’s then-Chief Financial Officer Fran Shammo said the company didn’t expect Go90 to be a “profit contributor to the enterprise” until two years later. (Shammo retired at the end of the year. )

Chip Canter, general manager of Verizon Digital Entertainment, said the Go90 audience is growing, “with December having been our best month ... and January pacing to surpass December.” NFL, NBA and soccer games are performing well, and so is original content from studios like AwesomenessTV, Canter said.

Last year, Verizon purchased Vessel, a startup designed to compete with YouTube by offering subscriptions to exclusive video content. Analysts said the app was slick and intuitive, and that Verizon was interested in Vessel for its technology and talent.

Last week’s layoffs addressed “duplicative resources,” Verizon said. The layoffs were in Go90’s engineering team (which is being consolidated in San Francisco from San Jose), as well as its marketing and hardware groups, the company said. Vessel’s co-founder, Richard Tom, who is now chief technology officer of Verizon Digital Entertainment, will oversee Go90’s engineering and operations office. Lonn Lee, who was head of product at Vessel, will lead Go90’s product team. Both Tom and Lee had previously worked at Hulu.

“These changes are not indicative to a change in our strategy, and we remain committed to rapidly enhancing our existing online video products and delivering new products,” Verizon said.

Some analysts wonder whether Verizon will change the way it pays for content and how Go90 is structured. Those who are not Verizon subscribers can access Go90’s content for free on Go90.com; the service is supported by ads. Some analysts said that Verizon might try to offer more content that’s exclusive to just its members, to encourage them to stick with the service.

“They spent a lot of money on content the first year, and they still have continued to do that,” said Eunice Shin, a managing director of consulting firm Manatt Digital. “The hardship is being able to really get the audiences there and get a return.”

It’s not easy to break into the entertainment industry. Yahoo tried to produce original shows for its Yahoo Screen, buying up the rights to NBC’s canceled sitcom Community and other original shows several years ago. But the company couldn’t figure out how to make money from those shows and Yahoo Screen was shut down. It has since teamed with Hulu to provide free content for its app, Yahoo View, and continues to offer live-streamed videos on Yahoo’s other properties.

“It just goes to show that it’s really hard to do it well on these digital platforms,” Shin said.